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# The Attorney General of Texas August 16, 1979 MARK WHITE Attorney General
Honorable George Cowden Chairman Public Utility Commission ofTexas 7800Shoal Creek Boulevard Austin, Texas 78757 Opinion No. MW-45 Re: Whether a cooperative effort of various industries to jointly operate an entity cogenerating electricity causes the entity to be apublic utility. Dear Chairman Cowden: You have requested our opinion concerning the classification of cogeneration projects under the Public Utility Regulatory Act, article 1446c, V.T.C.S. Yourquestion primarily involves section 3(c)ofthe Act which provides inpertinent part:

(c)The term ‘public utility’ or ‘utility,’ when used in this Act, includes any person, corporation, river authority, cooperative corporation, or any combination thereof, other than a municipal corporation, or their lessees, trustees, and receivers, now or hereafter owning or operating for compensation in this state equipment orfacilities for: (1) producing, generating, transmitting, distributing, selling, or furnishing electricity (‘electric utilities’ hereinafter);

....

. . . . (4)

... The term ‘public utility’ or ‘utility’ shall not include any person orcorporation not otherwise a public utility that furnishes the services or commodity described in any paragraph of this subsection only to itself, its employees, or tenants as an incident of such employee service or tenancy, when such service or commodity is not resold to or used byothers.

p. 134Honorable George Cowden - Page Two @W-45)

Your question involves the status of certain industrial concerns which can cogenerate electricity asaby-product oftheir normal industrial processes. The cogeneration project is proposed to be conducted by a Texas general partnership composed of four nonregulated corporations. The project will replace existing conventional oil/gas boilers at plants individually owned byeach partner with a single coal or lignite fired cogeneration steam plant. The plant will burn coal orlignite to convert water to high pressure steam. Thehigh pressure steam will pass through turbines to produce 180 megawatts of electricity. The cogeneration plant will consume approximately sixty megawatts, leaving 120megawatts available for export. The high pressure steam after passing through the turbine will automatically drop to a lower pressure steam which will be delivered to the corporate partner’s plants for use asprocess steam. Thepartners will consume the entire output of the partnership. You ask if the partnership or the partners will be apublic utility as defined in the Act. Asdefined insection 3(c)of the Act, a corporate partnership is the type ofentity which would be a public utility if it owned or operated for compensation facilities described in section 3(c)(l) as being for the production, generation, transmission, distribution, sale or furnishing of electricity. The partnership isclearly an entity which will ownfacilities used for the generation of electricity for compensation, and without an exemption, wouldbeapublic utility under the Act. The legislature recognized when itpassed the Act that it didnot intend to regulate entities which were furnishing utility service to themselves. The public interest in regulating utilities as&fined inthe Act isexpressed insection 2ofthe Act.

Sec. 2. This Act is enacted to protect the public interest inherent in the rates and services. of public utilities. The legislature finds that public utilities are bydefinition monopolies in the areas they serve; that therefore the normal forces of competition which operate to regulate prices in a free enterprise society do not operate; and that therefore utility rates, operations and services are regulated by public agencies, with the objective that such regulation shall operate as a substitute for such competition. The purpose of this Act is to establish a comprehensive regulatory system which isadequate to the task of regulating public utilities as defined by this Act, to assure rates, operations, and services which are just and reasonable to the consumers and to the utilities. The legislature in section 3(c)(4) exempted from regulation an entity which furnished utility service solely to itself. It isclear from the language ofsection 3(c)(4)that ifeach corporation built its own individual cogeneration facility, each one would meet the exception and wouldnotbe apublic utility under the Act.

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Honorable George Cowden - Page Three (NW-451

Werecognize that Texas has favored the entity rather than the aggregate theory in the Texas Uniform Partnership Act, article 6132b,V.T.C.S. See Source and Comments, Alan R. Bromberg, following section 1of article 6132b. Thecomments, however, also emphasize that the entity theory hasbeen used when it accords with business usage. The decision as to whether a cogeneration project conducted by a Texas general partnership would be a public utility is a new regulatory issue. It is not the type of business decision referred to inthe comments tothe Texas Uniform Partnership Act which caused entity treatment ofmany partnership transactions. Inaddition, the Texas Uniform Partnership Act still accords aggregate treatment to some partnership transactions. For example, section 15ofthe Texas Uniform Partnership Act makes all partners liable jointly and severally for all debts andobligations ofthe partnership. We,therefore, conclude that the aggregate theory should be followed in determining whether the partnership is supplying electricity to itself within the meaning of section 3(c)(4) when it supplies electricity to the plants owned by the partners. It is our opinion that the legislature intended to exempt a partnership in which the commodity is consumed entirely by the partnership and its corporate partners. Tohold otherwise would ignore legislative intent and elevate form over the substance ofthe transaction. SUMMARY A cogeneration facility owned by a partnership which furnishes electricity solely to the corporate partners is not a public utility under the Public Utility Regulatory Act.

MARK WHITE Attorney General ofTexas JOHN W.FAINTER, JR. First Assistant Attorney General TEDL.HARTLEY Executive Assistant Attorney General Prepared byJoyce Beasley Assistant Attorney General APPROVED: OPINIONCOMMITTEE C.Robert Heath, Chairman Joyce Beasley

P. 136Honorable George Cowden - Page Four (Mw-45)

David B.Brooks Rick Gilpin William GReid

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